Why we need the 1031 Exchange

Why we need the 1031 Exchange

The main benefit of carrying out a 1031 exchange rather than simply selling one property and buying another is the tax deferral. A 1031 exchange allows you to defer capital gains tax, thus freeing more capital for investment in the replacement property.
 
In real estate, a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. The term, which gets its name from IRS code Section 1031, is bandied about by realtors, title companies, investors, and soccer moms.
 
The 1031 exchange can be a great tool to increase your cash flow by deferring taxes. Savvy real estate investors have used it for decades. Through a properly executed 1031 exchange, you can legally defer, almost indefinitely, paying taxes on investment gains by using this 1031 exchange tool.